Selling the Mall at the Corner of Caveat and Emptor

“The Only Free Cheese is in a Mouse Trap.”

By John E. McNellis, Principal at McNellis Partners, for The Registry:

I had the following conversation with a broker a couple days ago. While not verbatim, it is true.The phone rings.

“John McNellis.”

“Hey, John, it’s Joe Smith. How you doing,” the broker asks.

“Fine, what can I help you with?”

“I’ve got a really interesting deal for you,” Joe says enthusiastically. “It just went on the market.”

“Hit me with it.”

“It’s the Parkwood Center in Townville. We think it has a lot of upside. It’s got a couple developable pads and—”

That worn-out word upside catches my attention as I’m reading an unrelated email. Trying to focus, I ask, “Why do we want to buy it?”

“It’s got real upside, you can reposition the supermarket, move a couple of the junior anchors around, bring in a new major, get the shops to market rent and you’ve got—”

“–Why is the seller selling,” I interrupt.

“He’s having trouble with his financial partner. We really like this deal—”

“–Who’s the seller,” I interrupt again. Bad habit but useful.

“Gem Tree Partners. Their money guy doesn’t want to finance the redevelopment.”

“Gem Tree Partners? That’s John Reid’s company, right?”

“Yes, his partner—”

“–Wait. The Parkwood Center in Townville,” I ask. Shallow-rooted memories emerging.

“Yeah, that’s it.” Optimism in his voice.

“I know that project. It’s at the corner of Caveat and Emptor?”


“It’s an oversized Pay-More market of about 65,000 feet that should be no more than 40,000, right?”

“Yeah, you got it.” Optimism ticking down a beat.

“And it has a 20,000 foot closed drug store and a 30,000 foot R&M tucked into a corner with almost no visibility? And R&M is threatening to vacate unless the owner builds it a new 15,000 foot store on the hard corner at a ridiculously low rent?”

“Well, yeah, I guess.” Optimism gone.

“It’s on about 25 acres, the center is too big by at least 150,000 feet and it has zero tenant interest?”

“You know this center pretty well, huh?”

“And it’s cut off by better supermarkets a ½ mile in either direction on Caveat. And because the town has no growth, there’s no residential or any other redevelopment play. That Parkwood Center?”

“Yeah, that’s it. How do you know so much about it?”

“Reid is a friend. We met over this deal and I told him to hand the keys to his lender.”

“Oh.” Total gloom.



“This is the worst deal you’ve ever pitched me. My advice to you: Don’t sell it to anyone you know or anyone you ever want to talk to again.”

I ended the conversation deciding not to take his future calls, wondering whether he would take my comments to heart, whether it would dissuade him from pitching this career-busting deal to others. I thought not.

Joe had either learned almost nothing in his twenty years in the business or was knowingly willing to strap a buyer into a rocket with a broken fuel-line. Was his pitch negligence or fraud? On reflection, I decided it had to be the former, the careless offspring of his cupidity and lack of intellectual curiosity (that is, unencumbered by the knowledge of what a successful redevelopment requires, he can pitch anything). Had Joe truly understood the center’s dismal prospects, he would have called someone else. I also decided his intent didn’t matter. Whether Joe is guilty of murder one or involuntary manslaughter, the result is the same, the buyer will ultimately die.

What does this conversation tell you?

If you’re a broker, it should be telling you to choose your listings carefully because the only question on projects like Parkwood will be how much of your reputation you will lose by pitching it. And that depends on whether you actually manage to sell it. If economic necessity requires you to take a Parkwood listing, at least do your best to figure out its potential downside and disclose that upfront. If Joe had first outlined Parkwood’s flaws and then said, “But remember there’s no such thing as bad real estate, only bad pricing. Maybe it will work for you at some number,” he would at least have maintained some credibility.

The lesson for principals is obvious: The only free cheese is in a mouse trap. Learning to recognize the trap of easy upside without breaking any fingers is part of the tuition one must pay to become proficient in real estate. Start by always doing your own underwriting. And if you’re not experienced in underwriting a particular property type, find someone trustworthy who is or skip the deal. By John E. McNellis, McNellis Partners, author of Making It in Real Estate: Starting Out as a Developer. The article was first published on The Registry.

That retail is overbuilt is obvious to anyone who has driven 20 miles in America. Less obvious is the why of over-building. Read… Over-Storing America

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  28 comments for “Selling the Mall at the Corner of Caveat and Emptor

  1. nick kelly says:

    Wow. Luv it. But only because I’m a sentimentalist, I wish you’d told the broker: Look you just pitched a zero. I’ll going to give you one more chance. Let’s see if your next one can be a ten or a 9.9. Then your average will still be a mediocre five, but I rate on today more than last week.

    But there sure are bunch of crap malls.

  2. James says:

    My local mall rebuilt the JC Penny parking lot. I can only think JCP is moving out soon.

  3. RD Blakeslee says:

    “If economic necessity requires you to take a Parkwood listing,…”

    I disagree with the premise.

    The generic princilple for me is: If any job requires you to do substandard work, get another job.

  4. curious cat says:

    The country is full of places like Parkwood. Yet the jurisdictions keep approving plans for new malls and shopping centers to cannibalize the old ones and create ugly non-performing properties. Reason? The jurisdictions love the new RE tax monies. I live in northern Delaware and we have seen this replay time and time again. We get the government we deserve.

    • MC says:

      Spot on, and add on top of that the land sale/lease (if it belongs to the municipality), the impact fees (gotta make that area marked as “agricultural” or “residential” commercial) and the ever increasing junk fees they hope to collect from here to eternity.

      Over my life I’ve been lectured by a wide array of municipalities over the supposed benefits of speculation, be it residential, commercial or industrial. The two most (ab)used phrases are “This is not speculation, but high quality real estate” and especially “It’s a breath of fresh air for the town coffers”.

      Intriguing how that real estate is never high quality and the money never gets used to upgrade the sewers, build a new road to bypass the town center, pay off existing debts etc but just disappears into thin air.
      I’ve seen this flick play out time and time again in too many countries to merely blame corruption: it’s simply a game to obtain enough quick cash to both keep well connected local businesses from imploding by giving them useless public contracts and legally buy votes from the usual “interest groups”.

      • Kent says:

        Yup. Citizens have a few demands:

        1. Excellent schools for their kids.
        2. Great roads to get to work on.
        3. Clean water.
        4. Excellent public safety, and most importantly:
        5. Their taxes reduced.

        The only way for a politician to survive is think as short-term as possible and shovel as much money as they can who will shovel it back into their campaign coffers.

        A definite game of winners and losers.

  5. roddy6667 says:

    I can see malls being repurposed as very secure gated communities, with some shopping inside the perimeter for convenience.

    • alex in san jose says:

      There’s a new mall that opened near me, it’s configured in a sort of a square, with the stores around the perimeter and a big parking lot in the middle. There’s a massive block of condos on one side of it. It’s got a Sprouts, Ross, and Home Goods along one side, all of which I visit regularly, plus other stuff like a mattress store, a bank, several eateries, and places like Ulta, which sell make-up. It’s thriving.

      Right along the back side of the Sprouts-Ross-Homegoods-Ulta side is the railroad tracks, and you know what you get when you have railroad tracks … that’s right, hobos. There are tents all along down there, and the hobos can walk over to Sprouts or wherever. Actually Sprouts tosses out a lot of veggies and stuff so these guys can put plenty of veggies in their mulligan stews.

      I don’t see a lot of worry about security, even with hobo camps right over the back fence and being so close to the Coyote Creek which has tons of homeless people living along it.

    • chip javet says:

      I’m guessing the reason they’d be “secure” is even crooks wouldn’t want to go to a “converted” mall.

  6. Meme Imfurst says:

    But you see, this story applies to more than commercial real estate. Indeed it applies to residential real estate. But wait….it applies to everything, I mean everything.

    A shopping center, a house, a car, a main stream media story…some one wants to sell you a pig in a Polk. Some one wants you to buy the dead horse, the junk, they have on their hands because it means money in theirs. Gosh. lets add war to that list, OK?

  7. Petunia says:


    I’m disappointed in you. The ideal end to this conversation would have been an offer for what you think it’s really worth.

    • d says:

      He cant make an offer.

      To make it viable, john would need to be paid a substantial sum, to take it.

      Start with bare land value, less Demolition, Clarence, and Disposal Costs.

      Plus a margin on all those costs, gives you an idea, how much John needs to be paid, to take it.

      That’s why cities end up with abandoned building’s on their hands.

      I have given that scenario to unrealistic vendors in the past.

      I chinese woman, Who had brought the property, sight unseen from a Mainland chinese Vendor, burst into tears, when she realized I was serious.

      That Scenario, is why the US Navy sells Ships/Aircraft Carriers to recycler’s, for $1.00, as long as they recycle them, in the US, with US labour.

  8. Pete says:

    Driving from here to an area 3 states over I notice how brainless failure is replicated; everywhere a department store & no customers, everywhere an auto-parts place, paint store, and 35 women’s clothing shops with empty lots. Nothing at all for a person over 60.

    Want a million-dollar idea : a Geriatric Mall. Blow up Sears, Penny’s and some more to put in residential towers for seniors on fixed income. Fill the Mall portion with medical services, dental, vets, pharmacies, a barber shop. Give ’em a gym instead of an auto-repair place, give ’em a travel agent, a post office, an SSA field office. These places would be in demand and thats the portion of the population who has plenty of money.

    • Frederick says:

      Travel agent? Those went out years ago didn’t they with online travel services like Travelocity etc? You could add a Starbucks though

      • alex in san jose says:

        You guys are so out of touch with the real Silicon Valley …

        Travel agents are certainly still a thing. My boss’s wife is one. Fax machines are still a thing. Landline phones are. They pay their bills by mail. I get a paper check each week which I take in person to my bank. The average person here lives the same way they did decades ago and they’re perfectly happy doing so.

    • Harambe says:

      They already have these in Florida.

  9. Singaporan says:

    Q: How can you be guaranteed to make a small fortune?

    A: Start with a large fortune and then invest in real estate.

    • TJ Martin says:

      A minor correction if I may in a moment of pedanticism ;

      Q; How do you make a million dollars in commercial real estate ?

      A; Spend ten million

  10. TJ Martin says:

    ” What does this conversation tell you? ”

    That the TV character ” House ” axiom is absolutely true ;

    ” Everybody Lies ” .. including those you think of as friends or trusted business associates when it comes to business and profit .. especially when desperation is the motivation .

    And for what its worth as a ” Small Source of Comfort ” I just experienced two similar situations over the last 30 days … my throwing both individuals under the bus and am considering taking legal action against one .

    Hmmm .. what was that bit of wisdom my ole multimillionaire business professor used to repeat endlessly back in the day ?

    ” The two most dangerous motivations when it comes to business and finance guaranteed to ultimately end up in tears are abject greed and desperation “

    • chip javert says:


      Not buying your story.

      Somebody’d bad deal (and you do appear to be a delicate little flower…) is another person’s ok deal.

      Taking legal action against someone offering you a deal that does not meet your discriminating tastes is bound to make a couple of lawyers rich.

      There probable are a few multimillionaire business professors, but (excluding Harvard & Stanford) not many.

      Going thru life with “everybody lies” because you saw it on TV…well, like you said, EVERYBODY lies.

  11. Crazy Horse says:

    Mr. McNellis,

    You really missed out on a great opportunity. Revitalizing a mall is a simple matter of creatively looking ahead.

    The first step is to ask all the tenants to leave, and collect bribes from each for allowing them to break their leases.

    Next apply for a quadrupling of the electrical service load for the building. The local authorities will love it— expansion and growth can’t be far behind.

    Rip out all the discount clothing racks and convert the entire building to a giant grow room. An attached retail outlet store with private party rooms could generate a nice secondary revenue stream. Once the business model is refined, wash and repeat all across the nation.

  12. Begbie says:

    my local mall has increasingly higher vacancies and more and more parking space leased to local car dealers for their increasingly higher inventories

    • Frederick says:

      Sounds Bullish On another note metals are rallying nicely with all the war tweeting going on

  13. Ivy says:

    Real Estate 101

    Why are they bringing this to me?
    Why is the seller selling?
    Who else passed, and why?
    What aren’t they telling me?
    How would I get F’ed in the process?

    Unless you can answer those questions, the rest won’t matter.

    • chip javert says:


      Business 101:

      You take a good deal to as many people (who have money) at the same time so you get the best price (think “advertising”).

  14. raxadian says:

    Long term having several small buildings seems to be more profitable than a big one.

  15. Gershon says:

    I have no desire to head down to the local mall and mingle with the feral “youths” who prowl the place in packs looking for trouble.

Comments are closed.